Indian equities at higher end of trading band: StanChart

Although declining inflation has brought in some relief, Steve Brice, chief investment strategist at Standard Chartered says the recent pick up in oil price will add to current account deficit worries. He continues to find better valuations in China and Korea but says India is being watched closely. “Political flexibility is much better in China than what the scenario is in India,” says Brice.

He sees Nifty in the 4,700-5,300 range. Cautioning investors looking at India, he says Indian equities remain at the higher end of the trading band. For now, he doesn’t see the Reserve Bank of India changing its stance on having any rate cuts at its credit policy meet on July 31.

For the US, Brice believes that the labor market data will be critical to the Fed in deciding on quantitative easing. The need to recapitalise banks, ring fence sovereign markets and announcement of more pro- reform policies continue to remain the three most critical requirements for the EU.

Below is an edited transcript of his interview to CNBC-TV18.

Q: What’s the approach for equities for the second half of this month? Is it looking like a dull performance or are you guys preparing for a big move?

A: Clearly the short-term risks are still fairly fragile from an equity market perspective. What we have been seeing this year has been very reminiscent of what we saw last year. Economic surprises particularly in the US have been disappointing. Data coming out are on the weaker side. If you look at the stock market performance, it’s very similar to what we saw in the beginning of last year.

We are heading into the quiet summer months and to be honest we are all hoping that they are going to be quiet because we still got the challenges in Europe that have yet to be resolved. We have seen some significant progress there. But there is that risk that we could see a little bit of a drop further from where we are now before we see a strong rally towards the end of the year. That’s really our outlook.

Q: What’s the market more focused on? The weakening of the economies which is fundamentally bad or the hope that all of this will lead to more quantitative easing or stimuli which then can spark off rallies?

A: I suppose it depends which day you are talking about. At the moment if anything the focus seems to be more on the former. So the deterioration we are seeing in growth profile, in terms of the US that’s been coming through pretty much on a daily basis. We did have industrial production bounce back yesterday, but overall the picture still looks fairly weak in the short-term.

But a lot of people now are focused on China. We are talking about a U-shaped recovery there. Clearly the data is quite concerning. The authorities seem to be more concerned about it. At some point that will lead to an accelerated response from policymakers. Bernanke hinted at it last night. We are still some way from the data pointing towards that.

The People’s Bank of China (PBoC) is expected to ease further, but first what’s key is what happens in Europe. The European Central Bank really has been very quiet in recent times. Spanish yields still kicking up around the 7% mark for the 10-year yield. That’s probably the key worry to focus on. If we get up towards 7-7.5% then we would expect to see a significant stimulus from the ECB.